Canada's biggest dollar-store chain, which expanded and prospered while consumers pinched their pennies, now plans to go public as the economy heals and markets thaw.

Dollarama Group LP, the Montreal-based chain with 585 stores, plans an initial public offering of more than $250-million this fall, cashing in on its success during the recession, investment banking sources said.

The deal marks the continued thawing of an IPO market that froze during the financial crisis. It also gives its majority owner, Bain Capital LLC, a much-needed win.

An IPO from a name-brand company such as Dollarama would mark the third large corporate debut on Canadian public markets in as many months, marking the end of a nine-month drought in IPOs that began in 2008. Insurer Genworth MI Canada Inc. and power company Magma Energy Corp. went public on the Toronto Stock Exchange this summer, raising $850-million and $100-million respectively.

A number of companies have also sold stock recently as investors bet on a full-fledged recovery. WestJet Airlines Ltd. raised $150-million this week, and investment bankers said Dollarama would make much the same pitch to potential shareholders.

Discount and dollar stores have generally been able to make sales gains in the recession as cash-strapped consumers look for bargains.

Dollarama recently hired advisers to work on the sale of 25 to 30 per cent of the company, sources said. The chain is 80 per cent controlled by Boston-based Bain, which purchased its stake in 2004 from chief executive officer Larry Rossy in a deal that valued Dollarama at $1-billion.

Bain is expected to target its IPO campaign at Canadian investors, as domestic retailers such as Shoppers Drug Mart Corp. and Loblaw Cos. Ltd. draw premium valuations compared with U.S. peers. As the leading player in its sector, Dollarama will attempt to claim the same lofty status. Bain was a minority owner of Shoppers when the drugstore chain went public in 2001.

"Bain will be selling from a position of strength. The chain is doing well in a tough environment," said one investment banker who follows Dollarama but is not working on the IPO.

Spokespersons for Dollarama and Bain declined to comment.

Since the buyout five years ago, Bain and Mr. Rossy have doubled the number of stores, and boosted sales and profit by rolling out new lines at higher prices. Not everything in Dollarama costs a buck these days: Since February, shelves have been stocked with plenty of items priced at $1.25, $1.50 and $2.

Privately owned Dollarama reported financial results yesterday - the company's debt trades on U.S. markets - and sales were up 14 per cent to $303-million in the most recent quarter compared with 2008, in part because the chain opened 54 new stores over the past year. Same-store sales rose 7 per cent, while quarterly operating profit was flat at $35-million. Dollarama has $460-million in debt.

RBC Dominion Securities and CIBC World Markets were major lenders to Bain on the 2004 buyout, and sources say these two investment banks are expected to play leading roles in an IPO.

Bain, a $60-billion (U.S.) fund, is not the only private equity fund selling a stake in a discount retailer. Rival Kohlberg Kravis Roberts & Co. filed late in August for a $750-million IPO for its U.S. chain Dollar General Corp., with analysts pegging the value of the whole company at up to $10-billion.

Dollar General is much bigger than Dollarama, with almost 8,600 stores and quarterly revenue approaching $3-billion.

"Bain wants to move ahead of the Dollar General IPO, while capitalizing on that buzz with investors," said another investment banker familiar with the fund's plan, but not working on the IPO. He added that the fund will not initially get private equity's traditional 15-per-cent-plus expected annual returns on its Dollarama investment, but said: "Bain isn't really cashing in. They are getting liquidity, but still plan to ride with the company, as they did with Shoppers."

KKR, Bain and the Ontario Teachers' Pension Plan, the former owners of Shoppers, sold their stakes in the drugstore chain over several years, after buying the retailer in 1999.

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